The minimum wage in Germany: what brought the state in?

Abstract:

A statutory minimum wage has been introduced in Germany, in the face of business opposition but abetted by union support. The political coalition in favour of minimum wage regulation brought together the centre-left and the centre-right with the argument that regulation is needed to prevent disfunctional interaction between low wages and the social security system. Thus, the dualization which characterizes Germany’s inegalitarian form of co-ordinated capitalism has provoked a corrective political response. The contribution traces the long path to government intervention and assesses why employers were unable, or unwilling, to pre-empt intervention by maintaining the coverage of collective bargaining. It is argued that market liberalization has had a paradoxical effect on employer power: intense domestic as well as international competition has reduced employers’ capacity to act strategically to fend off regulation by the government.